Nervous MPs keep their hard hats on

The nation may be in the grip of a fierce campaign by the miners against the resource super profits tax but so far voters are eerily quiet on the subject, Labor MPs report.

Even in Western Australia where the heat generated by the debate over the tax has been the most intense, MPs who have been out and about talking to voters about it were struck by the lack of vocal opposition.

But the MPs are battening down the hatches for fear of yet worsening support for Labor in Monday’s Newspoll, and certainly not taking heart from the lack of obvious anger about the tax in the electorate.

“It may be they have just stopped listening and have already decided to vote against us. It could be like a divorce where the wife wants out and the husband just hasn’t picked up the signals for the last two years," one Labor frontbencher said gloomily.

The message from the mining industry and Labor insiders to the government is similar and unmistakeable: the uncertainty about the tax cannot continue.

During the past week, in formal consultations with the miners and informal discussions with the finance sector, the message was: the uncertainty is killing investment confidence and has the potential to wreck Labor’s image in the market and business community.

The government appears to have heard the message. The compromise deal with the miners could see exemptions for sand and gravel quarrying and a resource tax closer in design to the 40 per cent petroleum resource rent tax that is applied to the offshore petroleum and liquefied natural gas industry.The compromise might also include more generous valuation of existing investments, meaning the tax cuts in at a higher level of “super profit". This could mean the generous 40 per cent write-off provisions for losses could be reduced or scrapped.

While it recognises the importance of ending the uncertainty in the market, the government might dribble out concessions to the miners over weeks.

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Key elements of the tax such as the 40 per cent headline rate and its application to super profits on existing investments are likely to remain. For this reason, the Minerals Council of Australia and the big miners, including BHP Billiton, Rio Tinto and Xstrata, will continue to vehemently oppose any compromise.

The government is prepared to go to the election with the mining industry campaigning against the tax. It plans to sell the tax as a means of improving the economy in the long term by paying for company tax cuts and higher infrastructure spending to facilitate mining production.

Labor insiders believe that voters might not understand the tax but might think it is justified if it hits big miners earning big profits. As long as voters are not affected directly by higher cost of living charges and immediate job losses, they might support or at least not oppose it.

This might work, but it is a high-risk strategy as voters are generally nervous about Labor’s economic management credentials, and people appear to be still making up their minds about
Kevin Rudd.
Selling the tax in the run-up to the election will test the political skills of Rudd and
Wayne Swan
like little else has during the roller-coaster ride since the 2007 election victory.